"I do know that when I am 60, I should be attempting to achieve different personal goals than those which had priority at age 20." - Warren Buffett
Retirement planning is a process that evolves with each passing decade of your life. And understanding the nuances of that process will help ensure a solid financial future. In this article, we'll explore some specific steps to consider for each life phase.
The most valuable resource in your 20s is time – because you're able to leverage the power of compounding. By starting early, you give your assets more time to grow. Consider taking advantage of tax-advantaged accounts such as a Roth IRA or employer-sponsored 401(k). Using a diversified portfolio, this could be a time to invest with a focus on long-term growth.
As you move into your 30s, this is a good opportunity to consider where you are, where you want to be, and what you might need to do in order to get there. Do you want to start a business? Buy a house? Start a family? If you need to make an adjustment (or take a risk) to get there, this might be a good time while you have plenty of life ahead and plenty of time to course-correct if needed.
Often, the peak earning years for individuals are between their 40s and 50s, after they've gotten more established in their careers. This is a great time to be more aggressive with savings, such as maxing out retirement accounts. While household expenses may also be at their peak for many families in this phase, beware of the temptation of "lifestyle creep," and take time to consider a balance of spending now versus saving for the long term.
Like your 40s, this decade is often part of the peak earning years. So, keep going! This may also be an opportunity to take some time to reevaluate what you want retirement to look like. When do you want to retire? When would it be financially possible to retire? What do you want retirement to look like? No need to have the questions answered all at once, but it may be helpful to ask and discuss them with someone you trust.
Several key retirement decisions come during this decade. Consider whether purchasing long-term care insurance makes sense (around age 60), when to draw Social Security (starting between age 62 and 70), and the assortment of Medicare options (at age 65).
For many individuals, retirement officially starts during this time. But retirement comes in all shapes and sizes (different timing, different budgets), and there's no one-size-fits-all approach. So, considering the right timing and budget for you is important during this phase.
As individuals and families move further into their retirement journey, there is often a shift of focus into considering what legacy and estate plans look like. Depending on the size of their wealth, along with the primary goal of providing for themselves, families may consider gifting strategies, updating beneficiaries, and updating legal documents to ensure a smooth transfer of wealth to future generations. And if family dynamics allow it, having open conversations about wealth transfers can help ensure a smooth transition.
As the process of retirement planning evolves with each decade, consider where you might be in that process right now. What are one or two things for you to focus on as your next steps? And for many folks, partnering with a trusted adviser can help in that process. No matter where you are in your retirement planning process, focus on one or two next steps, keep going, and enjoy the journey.
All investing involves risk, including the possible loss of principal. Nothing contained herein should be construed as individualized advice and is for informational purposes only. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will be suitable or profitable for a client's investment portfolio. Past performance is no guarantee of future performance.